Funko third quarter earnings stumbled on Thursday despite a record sales year for the pop culture collectibles leader. Analysts expected Funko's earnings to rebound after declining in Q2, its first drop since December 2020. But instead they dropped for the second quarter in a row and Funko cut its full year forecast. FNKO stock halved following the results.
The company behind Funko Pop! figurines has seen major growth in its lifestyle and accessories sales. And Funko is making major strides in video games, NFTs and expanding its intellectual property as part of its ambitious goal of reaching $2 billion in revenue by 2026.
Collectibles Giant Taps This NFT Niche To Fuel Growth
For the second quarter, Funko's earnings dropped 35% to 26 cents per share, marking the first decline in six quarters. While revenue grew 34% to $315.7 million over the year, driven by 114% growth in its Loungefly brand sales.
Funko Earnings
Expectations: Wall Street expected adjusted earnings to jump 28% to 50 cents per share while sales climbed 19% to $321 million.
Results: Funko's adjusted earnings fell 28% to 28 cents per share while revenue rose 36% to $365.6 million.
The company's Loungefly lifestyle apparel sales jumped 57.3% to $62 million. While sales for its core collectibles, including the Pop! figurines, rose 33.7% to $281.5 million. Funko's push it expand e-commerce offerings resulted in 36.5% direct-to-consumers sales growth. And it doubled its Digital Pop! NFT sales to an average of $500,000 per drop, with multiple releases topping $1 million in sales.
However, Funko is struggling with supply chain issues following the coronavirus pandemic. Quarterly inventories skyrocketed 88.7% over the year to $265.8 million. Funko noted it expects to make sequential progress on its inventory levels in the fourth quarter.
Selling, general and administrative expenses jumped 63.5% to $97.9 million as the company invests in building out its infrastructure for future growth. Meanwhile, gross margin fell 100 basis points over the year to 35%, driven by product costs outpacing its previous price increases on certain products. And in the earnings call, Funko said it expects margins to decline again in Q4 due to margin seasonality and inventory management. Funko's fourth quarter margins are generally lower as retailers take advantage of contractual discounts.
Funko slashed its 2022 outlook following the results. The company expects adjusted earnings between 85 cents and 95 cents per share, falling from $1.42 last year. And sees sales ranging from $1.29 billion to $1.33 billion. It previously anticipated earnings of $1.88 per share to $1.99 per share and revenue between $1.3 billion and $1.35 billion. Wall Street predicts Funko will post earnings of $1.91 per share on $1.33 billion of revenue.
FNKO Stock Analysis
FNKO stock ranks second in IBD's Leisure, Hobbies and Games group, according to IBD Stock Checkup. JAKKS Pacific leads the group.
Funko has a 69 Composite Rating, which combines a number of key technical indicators. FNKO stock has a Relative Strength Rating of 85, indicating strong performance against its peers in the S&P 500 over the last 12 months. After Funko slipped up on its earnings growth streak, its EPS Rating fell to 76 from 91.
FNKO shares attempted to craft a new base after failing to break out of its cup-with-handle base following its second quarter report.
FNKO stock dove nearly 60% on Friday after dropping 20% overnight following the earnings announcement. Shares are trading at their lowest level since November 2020.
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